QSEHRA rules for the Qualified Small Employer Health Reimbursement Arrangement are important to remember if you're thinking about offering a QSEHRA to your employees. Here are 5 important Qualified Small Employer HRA rules to keep in mind!
If you are a small employer with less than 50 employees, QSEHRA might be the way to go. You can compare QSEHRA and ICHRA here, and we always recommend you speak to your CPA about what will work best for your company.
A forerunner to two new HRAs that extend its footprint (the ICHRA and the EBHRA), QSEHRA is part of a growing trend toward more affordable and efficient benefits.
QSEHRA rules to know
QSEHRA set up and QSEHRA administration with Take Command Health is a cinch. But there's a few things to know before you jump in. Here are the QSEHRA rules to know.
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Eligibility for companies: To offer a QSEHRA, the business must be a “small employer” in the eyes of the IRS with less than 50 full-time employees (defined in IRS section 4980H(c)2). The second rule is that the business can't have a group health plan. The small business or non-profit cannot have a traditional group health plan (defined in IRS section 5000(b). This makes sense—the purpose of a QSEHRA is to reimburse for individual health insurance, so a business cannot have a group health plan at the same time. This restriction does not apply to non-health group benefits like life insurance or disability insurance.
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Eligibility for employees: Employees must be covered by a plan that provides Minimum Essential Coverage. MEC plans include major medical plans, Medicare, Medicaid, etc. Faith-based sharing ministries, short-term plans, and indemnity plans are not MEC but may be able to be supplemented with a MEC offering in order to qualify. An employee can also be covered by a spouse's plan or parent's plan. The employee must also be an actual employee; 99% of the time that means they are W-2 employees.
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Reimbursement rates: Reimbursement rates for 2021 are limited to $5,300 for individuals and $10,700 for families.
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Special enrollment periods: A new update as of January 2020, employers who decide to offer a QSEHRA now prompt an open enrollment period, which gives employees 60 days to purchase qualifying plans. This is a big improvement and makes finding a plan easier for employees!
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Eligibility for owners: Wondering if you can participate in your own QSEHRA as an owner? It depends on how your company is set up.
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C Corps are legal entities separate from the owners, so the business owner and dependents can utilize a QSEHRA.
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S- Corps prevent businesses from being taxed by passing any profits and losses through shareholders personal income tax returns. Because of this set-up a share-holder is considered self-employed, and not an employee, therefore making them ineligible to participate in a QSEHRA. IRS rules extend to family members including: spouse, parents, children, and grandchildren. Even if family members are W-2 employees at your business they are still not able to participate in the QSEHRA. The owner is not an employee and will not qualify for the QSEHRA. For an S-Corp, the owner's dependents cannot participate as a W-2 employee, either.
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Partnerships also are not subject to income tax. Partners are directly taxed, making them self-employed and not eligible for participation. Bottom Line: business owner cannot participate in QSEHRA. The Loophole: if the partner’s spouse is a W-2 employee (and not a partner spouse) then the owner can participate in the QSEHRA as a dependent of the spouse.
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More questions about Qualified Small Employer HRA rules?
We've built a couple of excellent resources to help you better understand what QSEHRA can do for you. Check out our QSEHRA tax savings calculator to see how it affects your bottom line, look through our QSEHRA reimbursement guide to see what can be reimbursed, or use your QSEHRA plan designer tool to visualize what your plan would look like and how it would work.
Our team of HRA experts is on hand to chat with you on our website. Just give us a shout!
